We all want to renovate our homes. As soon as we move in, we want to update fixtures and customize layouts. If we’re living in a home we fell in love with over a decade ago, it may be time for a facelift. Renovations are also a huge part of preparing to list your home for sale. When it comes down to financing a renovation project, there are a few options to consider. Which one is best for you?
First things first, you need to have an idea of what your renovation project is going to cost you. Are you doing the work yourself or will you need to hire professionals? How big is the renovation going to be? When you have a budget in mind, it can make deciding what financing option you will be using much clearer.
Here are the top 6 options for financing your renovation project. Speaking with a mortgage broker about them can help you identify the best option for financing your renovation.
1. Mortgage Refinance
The option to refinance your mortgage can be a great way to afford a renovation project. This form of financing can have many benefits for homeowners. This includes being able to acquire a lower mortgage interest rate on your existing mortgage. This is a perfect option for homeowners who have owned their house for a while and have paid down some of the principal of their loan.
2. Home renovation loan
A home renovation loan is perfect for a new homeowner. A home renovation loan is a loan that you take out in addition to the amount needed for purchase. Home renovation loans often have specific parameters that must be followed, such as maximum spending amounts and completion timelines. If you’re buying an older home and know right away that you want to renovate, a home renovation loan is a great option.
3. Home equity loan
A home equity loan is a second loan taken out against the projected equity in your home. This is a single loan which makes it different from the ongoing nature of a home equity line of credit. If you have a large amount of equity in your home, this can be the perfect option for financing a renovation project. A home equity loan becomes a completely separate loan outside of your existing mortgage. If you have a great mortgage rate in place, this second loan will not affect it. Home equity loans often come with lower rates than credit cards and getting approved can be easier since you’re using your home’s value as collateral.
4. Construction Loan
Are you gutting the entire first floor? Perhaps adding a whole second floor? A construction loan can be the perfect answer for those large-scale renovations. Although construction loans can be far more difficult to obtain, they work well for large projects. This form of financing often comes with strict requirements that must be met and you receive money in stages rather than as a lump sum.
5. Home equity line of credit
A home equity line of credit (HELOC) is a line of credit you receive from a lender that takes your home’s value into consideration as collateral in case you default on payments. HELOC’s have interest rates that can be tax-deductible and can allow you to fund small and large-scale upgrades to your home. This is a great option for homeowners who plan to complete a few projects over time and want something they can tap into and pay off as they use it. HELOCs are much like credit cards but have far lower interest rates.
6. Cash or out of pocket
We all wish we had the money up front to fund our own renovation projects. If you have the opportunity to self-fund a renovation, that is your best option. If financing a renovation project is not something you choose to do, paying out of pocket slowly over time is a great way to complete your dream renovation.
The easiest decision you’ll make here is when you decide to renovate. You look around your home and think of ways to make it more functional. What can be difficult is coming up with the money to complete this vision. A mortgage broker can help you look at the scope of the project and the options available to you before you get too overwhelmed.
In Victoria, there are many aging homes that would be perfect for a renovation. A mortgage broker in Victoria BC will help ask the right questions to get you the right financing method. Are you a new homeowner or a long-time owner? How big of a renovation project are you planning? No matter what the dream, a mortgage broker can help you turn it into reality. A mortgage advisor can help you establish what kind of financing is available to you before you plan your renovation too far ahead. You don’t want to start planning only to find out you will not be approved for the cost of the renovation. We want to help you build your dream home. Get in touch and find out how you can afford your dream renovation project.
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